The foundation upon which this study is built is to examine the necessity to establish a derivative market in Nigeria as a means for capital market development in an emerging economy. Hence, the paper took a snapshot at the various types of derivatives namely; options, futures. Forward and swaps. It also examines the need to establish derivative market in Nigeria. Some of the problems that are likely to impede a smooth operation of a derivative market in Nigeria were identified such as: absence of an organized derivative exchange, inadequate manpower, the underdeveloped nature of our money and capital market, absence of robust regulating framework and a weak legal system. It is suggested therefore that Government should collaborate with organized private sector to ensure the establishment of the derivatives exchange in Nigeria. Also, manpower should be trained, while the existing regulating framework should be strengthened to expand its coverage. This we believe will help in enhancing a smooth takeoff of a derivative market in Nigeria.